On the back of the news that the average house price had now risen to an all time high, here at Generation-Rent.com we decided to look over the figures for ourselves. The Office of National Statistics release the figures to the public and of course the press cherry pick out only the headline grabbing statistics.

We dug a little deeper and did some cross referencing to come up with this little snapshot of data. We broke it down into two year chunks so it’s a little less intimidating!

What this table below shows you is that in the last 13 years the amount of deposit required to secure a mortgage has increased 133.82%. Add to that the fact that house prices themselves have increased 154.64% and you have a pretty staggering state of affairs on your hands. Remember, this is in just one single decade.

Year Average Wage Average Deposit Average House Price
2000 £30,000 £ 68,000 £ 97,000
2002 £34,000 £ 78,000 £113,000
2004 £40,000 £104,000 £169,000
2006 £49,000 £132000 £193,000
2008 £54,000 £150000 £227,000
2010 £58,000 £151,000 £243,000
2012 £55,000 £153,000 £239,000
2013 £58,000 £159,000 £247,000

 

So then we should see the percentile of salaries tracking that rise and it would appear the the figure for pay increases in that duration is 93.33%. That sounds ok, don’t you think?

However that basically means a 40.49% shortfall for a deposit and a whopping 61.31% shortfall against salaries vs house prices

The reasons for all of these increases we have outlined in our article how did we get here so we won’t go over them again, however that average salary figure itself seems a little off in itself.

We’re not sure about you but we don’t know too many people who are, on average, receiving a salary of £58,000 a year and even if you’re lucky enough to get that amount then you’re paying £23,200 in tax – leaving you with £34,800 for your life expenses.

To really show you the discrepencies in all this we need to sadly show you a graph.

Housing Market Simple Average house prices, Mortgage advance and incomes.

So as you can see, from 1992 to 1996 house prices, deposits and salaries tracked at a relatively sensible and affordable level. However as we approach and pass the millennium the acceleration in prices (and therefore deposits) is very marked. This we believe is the effect of the buy to let market and cheap mortgages accelerating prices whilst keeping them affordable. Come the financial crisis in 2007-2008 we see the dip in prices and yet not the fall you would expect but as we approach 2013 a rise to an all time high.

The issue for the future is what we call “the great cash out”. That’s the point when all the baby boomers who invested in property as a supplement to their pensions, which where ravaged in the recessions over the years, will sell their property portfolios to pay for the care home costs. That is when they liquidate the assets and flood the market with empty homes in no chain. Prices will fall.

When the government tell you there is no housing bubble it means they are talking in terms of the next 2 years, not the next 10. By that time when generation rent has actually managed to buy through the “help to buy” scheme they will be saddled with huge mortgages, inevitable high interest rates and negative equity.

Prices will take a long time to recover to the level they bought their homes at, if they ever do.